An Introduction to Investing in Bitcoin

Thanks to the concept of the blockchain, it has been possible since 2009 to exchange value over the internet by holding a decentralized digital coin, such as Bitcoin.

To get some, you generally have to offer something in return — and that something can take many forms. Since the network’s creation, bitcoins are initially obtained by contributing to network security: it is mining that enforces the consensus. Owners of the bitcoins generated by the protocol can then part with them in exchange for fiat value ($, €, etc.), for goods or services (Pizza Day, Tesla), or for any other value proposition such as the use of « human brain time » (solving captchas, watching ads, and so on).

Want to learn more about the Bitcoin revolution? Discover the key milestones of Bitcoin’s birth and growth in our article on the Bitcoin revolution.

What is the difference between buying and mining Bitcoin?

To buy Bitcoin, you simply create, verify and fund an account on an exchange and place a buy order. The main difference with investing in mining is that the value of the investment fluctuates solely with the price of Bitcoin. Mining, by contrast, generates bitcoins — and therefore a yield, as long as the production cost is below the spot price. Even without any movement in Bitcoin’s spot price, a miner’s rewards evolve over the whole period of operation.

There are several ways to mine or buy Bitcoin, which is what we will look at in this article.

Buying bitcoins

This is a relatively simple, passive investment.

To buy Bitcoin, you create, verify and fund an account on an exchange, then place a buy order for the amount of your choice. Finally, you are free to store your crypto directly on the platform or to transfer it to a hardware wallet to hold it yourself. The second option is strongly recommended — as the saying goes, « your keys, your coins. »

It is important to understand that the price of Bitcoin is very volatile, as with all cryptocurrencies. Profitability depends on when it is bought and when it is sold — knowing that it is impossible to predict Bitcoin’s price in advance.

Unlike mining, buying bitcoins does not generate additional income, only capital gains or losses. The only thing that moves its value is its price.

Finally, an interesting strength of buying Bitcoin is liquidity: it can be bought and sold at any time on exchanges.

How do you buy Bitcoin?

Several methods exist:

• On centralized exchanges (CEX) such as Kraken, Binance, etc.
• On peer-to-peer or decentralized platforms (DEX) such as Binance P2P.
• Via BTMs (Bitcoin ATMs): automated machines that let you buy and sell Bitcoin with a credit card or cash. There are 37,796 of them spread across 77 countries worldwide. A few Bitcoin ATMs exist in France, but most are in North America.

There are other ways to get exposure to Bitcoin without holding it directly:

• Bitcoin ETFs, recently authorized in some countries such as the United States, Australia and Hong Kong. These investment vehicles let ordinary investors gain exposure to Bitcoin’s price movements.
• Investing in funds that hold Bitcoin or Bitcoin-related assets in their portfolio.
• Buying Bitcoin futures, which let you speculate on Bitcoin’s future price moves without holding it directly.
• Options contracts: derivatives that let investors speculate on Bitcoin’s price without owning it. There are two types: call options and put options.
• Shares in listed crypto companies (Coinbase, etc.).
• Shares in companies that hold Bitcoin (Tesla, MicroStrategy, etc.).

What is cryptocurrency mining?

Crypto mining is the process by which new transactions are verified and added to a blockchain. Mining relies on a Proof of Work (PoW) consensus to secure the blockchain. Miners use powerful computers to solve complex mathematical problems that secure the network. In return, they collect the fees attached to transactions and/or earn newly issued coins on the network.

To go further, see our article that gives an overview of what mining is.

Is cryptocurrency mining profitable?

The profitability of crypto mining depends on several factors: the cost of electricity, the hardware used, network difficulty and the price of the cryptocurrency. It is essential to run a thorough cost-benefit analysis before getting started. At Startmining, we master the entire value chain of a mining strategy and put that expertise at your service.

Why does energy management matter in crypto mining?

Energy management is crucial in crypto mining, because the activity requires significant electrical resources. Miners must optimize their energy consumption to stay profitable against network rewards and maximize their margins.

How do you choose the right mining hardware?

The choice of mining hardware depends on several factors: the algorithm you want to mine, the network reward and your budget. Miners have to consider network difficulty and the potential profitability of a given machine — which depends on its hash power, its purchase cost and the cost of its energy consumption.

What are the risks of crypto mining?

The risks include investment loss tied to price volatility, changes in mining algorithms, hardware failures and loss of profitability. Miners must be ready to face these risks and take steps to mitigate them.

Mining Bitcoin

Unlike buying Bitcoin, mining requires purchasing hardware dedicated exclusively to the activity (ASICs) and paying running costs (hosting and energy bills, etc.).

Mining generates income in BTC (block rewards + transaction fees).

It is worth noting, however, that the profitability of this type of investment does not depend solely on the price of Bitcoin. Other factors come into play, such as network difficulty, the price of energy, hardware efficiency, and so on.

It is also a medium-term investment: reselling mining machines takes more time than selling bitcoin on an exchange, especially when the sale involves logistics and administrative steps (VAT, customs fees, etc.).

How can you get exposure to Bitcoin mining?

• Invest in infrastructure and mining machines and run the mining operations yourself. This requires technical knowledge, a very large budget and access to preferential energy rates.
• Buy ASICs and use a colocation hosting provider. Startmining handles the shipping, installation and maintenance of your machines, delivering economies of scale while you remain the owner of the hardware.
• Buy START tokens: Startmining offers an innovative solution that lets you earn the rewards from the bitcoin mining of its industrial farms. By staking the START token on one of Startmining’s mining pools, you earn the rewards tied to your power (hashrate/token).
• Subscribe to a cloud mining contract: buying a hashrate contract (renting a quantity of computing power) for a fixed term from a mining company, to earn the associated Bitcoin rewards.
• Invest in shares of listed mining companies such as Hut 8, Core Scientific, etc.
• Lottery mining: to reconnect with the original consensus and try to win the full reward of a block.

What environmental challenges come with crypto mining?

Crypto mining is often criticized for its negative environmental impact because of its high energy consumption. That is true when the electricity used comes from non-renewable sources. At Startmining, we are committed to offering 100% green mining. Miners want to make their activity more sustainable and eco-friendly by using green energy, supporting the development of renewable infrastructure through the use of production surpluses.

How do you secure your mined assets?

To secure mined cryptocurrencies, it is essential to store your assets in a secure digital wallet, preferably offline. Miners should also take security measures such as regularly updating their software to verify the owner wallet tied to their computing power.

At Startmining, we apply 0% mining fees on our clients’ rewards. Those rewards are paid directly to their wallet from the mining pool. Everything is transparent and verifiable on our monitoring dashboard as well as on-chain.

Since 2019, Startmining has ensured that advanced infrastructure and strategic, intuitive hosting solutions are the key to mining that is accessible, transparent and profitable. Find our products and services on our website.

Does the vocabulary of crypto mining feel complex? Check out our crypto mining glossary.